On 6 April 2016 a new law will be implemented which will have a significant impact on all companies, Limited Liability Partnerships (“LLPs”) and Societates Europaeae (“SEs”) in the UK. The changes to the Companies Act 2006, brought about by the Small Business, Enterprise and Employment Act 2015 (the “Act”), which is being implemented in phases, are aimed at increasing transparency regarding the ownership and control of companies. References to companies throughout this article should generally be read as applying to LLPs and SEs, although certain modifications apply to LLPs which are outside the scope of this article.

In addition, the Act has also introduced changes to company filing requirements (which will come into effect in June 2016) and provisions affecting the appointment and removal of directors. These changes, however, fall outside the scope of this article.

One of the key changes brought about by the Act sees the introduction of the requirement for all companies (subject to limited exceptions) to keep a new statutory register, the Register of People with Significant Control (“PSC Register”). The PSC Register is to sit alongside a company’s existing statutory books and is in addition to the register of members (shareholders) of a company. Additional provisions due to come into force on 30 June 2016 will also require companies to file their PSC Register with Companies House at least annually, along with their Confirmation Statement (which will be replacing the current Annual Return). Once the PSC Register has been filed, the information will be publically available (except the usual residential address and calendar day of the individual’s date of birth).

All UK companies, LLPs and SEs are required to maintain a PSC Register other than those that are subject to Chapter 5 of the FCA’s Disclosure and Transparency Rules (being those companies with shares admitted to trading on the London Stock Exchange and other prescribed markets including AIM and ISDX), or companies with voting shares admitted to trading on other regulated markets in the EEA or specified non-EEA markets (being certain markets in the US, Israel, Japan and Switzerland). It will however still be relevant for these companies where they have UK subsidiaries (to the extent that they are not exempt).

In this article, we summarise the key changes that all companies must comply with as a result of the implementation of the Act and the introduction of the PSC Register.

What is the PSC Register?

A company’s PSC Register will require companies to record:

the details of individuals (either alone or as one of a number of joint holders of the share or rights in question); and

legal entities,

with “significant control” over the company (each a “PSC”) with a description of the nature of their control.

For these purposes, “significant control” means a person who:

(a) holds, directly or indirectly, more than 25% of the share capital of the company (calculated by reference to its nominal value);

(b) holds, directly or indirectly, more than 25% of the voting rights in the company;

(c) has the right, directly or indirectly, to appoint or remove a majority of the company’s board of directors;

(d) otherwise has the right to exercise, or actually exercises, significant influence or control over the company (see “Significant Influence or Control” below); or

(e) has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm which is not a legal entity, but would itself satisfy any of the above conditions if it were an individual,

(together, the “PSC Conditions”).

Relevant Legal Entities

A PSC is defined as an individual and not a legal entity (for example, another company, partnership, trust etc). However there will be instances where a legal entity will need to be recorded in the PSC Register of a company.

The rules on this are complicated. A legal entity will need to be entered on a PSC Register for a company where such legal entity is a registrable relevant legal entity (“RLE”).

This means a legal entity which:

(a) would satisfy one or more of the PSC Conditions if it were an individual; and

(b) is either:

required to keep a PSC Register (the effect being that any overseas entity which does not itself satisfy (b)(ii) or (b)(iii) below would not be a registrable RLE); or

subject to Chapter 5 of the FCA’s Disclosure and Transparency Rules (being a company with shares admitted to trading on the London Stock Exchange and other prescribed markets including AIM and ISDX); or

a legal entity with voting shares admitted to trading on a regulated market in the EEA or specified markets in the USA, Switzerland, Japan and Israel; and

(c) is the first RLE in a company’s corporate ownership chain.

For example, where a company (“Company A”) is owned by another company (“Company B”) and Company B satisfies (a), (b) and (c) above:

Company B would be listed in Company A’s PSC Register as a registrable RLE; but

an individual who would be required to be included in the PSC Register for Company B would not also need to be listed in Company A’s PSC Register. The effect of this is to allow anyone interested in where any significant control or influence over Company A lies can look up the corporate chain and interrogate Company B’s PSC Register to determine the individual with significant control.

Significant Influence or Control

Draft statutory guidance as to what will constitute “significant influence or control” over companies in the context of the PSC Register has been issued by the Department for Business, Innovation and Skills. The guidance does not provide an exhaustive statement of what would constitute “significant influence or control” but provides a number of principles and examples which would be indicative of significant influence or control. Key points highlighted in the guidance include:

The “control” or “significant influence” does not have to be exercised by a person with a view to gaining economic benefits from the policies or activities of the company;

A person may hold a right to exercise significant influence or control as a result of a variety of circumstances including the provisions of a company’s constitution, the rights attached to the shares which a person holds, a shareholders’ agreement or otherwise;

Examples of what might constitute a person having a right to exercise significant influence or control include:

where a person has absolute say over decisions relating to the running of the business of the company including, adopting or amending the company’s business plan, changing the nature of the business or appointing or removing the CEO; or

where a person has absolute veto rights over decisions relating to the business of the company including adopting or amending the company’s business plan or making any additional borrowing from lenders;

With regards to standard minority shareholder protections such as absolute veto rights in relation to certain fundamental matters, this is unlikely to constitute significant influence or control on its own;

A company will also need to consider whether there are any other individuals who may actually exercise significant influence or control over a company. For example, an individual whose recommendations are always or almost always followed by shareholders who hold the majority of voting rights in the company, such as a company founder who no longer has a significant shareholding but who makes recommendations to other shareholders as to how to vote and such recommendations are always or almost always followed;

A non-exhaustive list of roles and relationships that will not, on their own, result in a person having significant influence or control has also been included (being certain “Excepted Roles”). This list includes lawyers, accountants, management consultants, investment managers and tax or financial advisors who provide services to the company. The list also includes, amongst others, an employee acting in the course of their employment, including a director, employee or CEO of a third party, which has significant influence or control.

What does a company need to do to comply with the new rules?

Companies must take reasonable steps to identify its PSCs or registrable RLEs. If a company does not already have the information it needs, it must give a formal notice to anyone it knows or believes to be a PSC or registrable RLE asking them to confirm the nature and extent of their interest.

Next steps:

Every company should consider all documents and information that is already available to it to identify any PSCs and registrable RLEs. A company may also need to contact its shareholders to seek further information to enable it to identify PSCs and registrable RLEs. Where a PSC has been identified, a company must make sure that it has all the information that it needs to enter the PSC on the PSC Register and the relevant PSC must confirm the information required to be included in the PSC Register. Once received, the details should be recorded in the PSC Register.

This information will need to be filed with Companies House from June 2016.

There is also an ongoing obligation to keep this information up to date.

Criminal sanctions will apply to companies and their directors who fail to comply with the requirements under the Act.

A company’s PSC Register should never be empty. From the 6 April 2016, unless a company immediately knows who its PSCs or registrable RLEs are and can confirm the required information, a company must enter on the PSC Register that they have not yet completed taking reasonable steps to find out if there are PSCs or registrable RLEs. In the event that there are no PSCs or registrable RLEs, a note of this must be made in the company’s PSC Register.

The following information will need to be included in the PSC Register in the case of individuals:

Name;

Service Address;

Country, state or part of the UK where the PSC is resident;

Nationality;

Date of Birth (although the day of the PSC’s date of birth will not be made publically available);

Usual Residential Address (this information will not be made publically available unless such residential address has been provided as a service address);

the date the individual became a PSC (which, for companies completing a PSC Register for the first time in April 2016, will be 6 April 2016); and

which of the PSC Conditions the PSC satisfies.

This information must also be ‘confirmed information’, an explanation of which is set out in the non-statutory guidance.

Different information is required for a registrable RLE namely:

Corporate or firm name;

Registered or principal office;

The legal form of the entity and the law by which it is governed;

If applicable, the register of companies in which it is entered (including details of the state) and its registration number in that register;

the date on which the entity became a registrable RLE (as above it is likely to be 6 April 2016); and

which of the PSC Conditions the registrable RLE satisfies.

The changes to be introduced by the Act are extensive and it is expected that many companies will need further advice and guidance as to how to comply with the provisions. The above is a summary only of the key changes brought about by the Act.

If you would like to discuss any of the above further, please contact the Corporate Team at BWB. We have considerable experience advising companies on day-to-day corporate governance issues and would be happy to assist with any queries.